Fletcher Reede (Jim Carrey) is a particularly career-focused lawyer and divorced father. He has a habit of giving precedence to his job, breaking promises to his young son Max, and then lying to both Max (Justin Cooper) and his ex-wife Audrey (Maura Tierney) about the real reason for having done so. Ultimately, Fletcher misses his son’s birthday party because he is having sex with his partner Miranda (Amanda Donohoe), and Max wishes while blowing out his cake candles that his father couldn’t tell a lie for an entire day, a wish that immediately becomes true.

Fletcher soon discovers, through a series of embarrassing incidentsâ€”such as when he tells Miranda that he has “had better” just after having sex with herâ€”that he is unable to lie or even withhold a true answer. These incidents are inconvenient, as he is fighting a divorce case in court which, should he win, could be a huge boost to his career. His client is Samantha Cole (Jennifer Tilly). His main witness is willing to commit perjury to win, but Fletcher discovers that he cannot even ask a question if he knows the answer will be a lie; during the case he even objects to himself when he tries to lie to get the desired information. Meanwhile, Audrey is threatening to move to Boston with her new boyfriend Jerry (Cary Elwes) and to take Max with them.

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The premise of Liar Liar, that of a protagonist who must tell the truth for the next 24 hours, can also be found in the Bob Hope movie Nothing But the Truth (1941 film).

Set in 1976, Jackie Moon is a singer who has used the profits from his one hit single “Love Me Sexy”, to buy a basketball team in the American Basketball Association, the Flint Tropics, becoming the owner, head coach, and starting power forward. The ABA commissioner announces plans for the ABA-NBA merger with the National Basketball Association, but only four teams will move to the more established league. The Tropics, the worst team in the league, are in danger of dissolving. In response, Jackie argues that the teams with the four best records overall should be merged into the NBA. The commissioner reluctantly accepts Jackie’s offer.

Now that the Tropics have somewhat of a shot to be an NBA franchise, Jackie trades away the team’s washing machine to the Kentucky Colonels for Ed Monix, former backup point guard for the NBA Champion Boston Celtics. Soon, the commissioner reveals that as well as having a top-four record, the Tropics will also have to have a stable fan base and have an attendance of at least 2,000 fans every remaining game of the season.

Jackie begins to promote wildly by such gimmicks as watching him wrestle a bear after the game. The Tropics begin playing better with Monix, as well as the increased intensity of Clarence “Coffee Black” Johnson. Monix soon takes over as offensive and defensive coordinators, as well as starting point guard, leaving Jackie merely the title of head coach. Monix trains the team rigorously with a play he calls the “puke”, as the players are to run it, without a ball, until they vomit.

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The coach of the Spurs offers Coffee Black a position on the team. The now-former ABA commissioner offers Jackie a position on the staff of the NBA assistant commissioner, as a marketing director. Just as Jackie is about to accept, the commissioner is mauled by the bear Jackie wrestled with earlier.